By Sinéad Carew

(Reuters) – Shares of staples and consumer discretionary stocks traded in opposing directions Tuesday, as positive retail sales data was matched by disappointing financial targets and earnings from Walmart (NYSE). Walmart blames high inflation.

Walmart stock shares fell 11.4% following a quarter-quarter earnings drop of 25% and a reduction in full-year profits. This was due to higher fuel costs and rising labor costs. Shoppers, who have been squeezed by inflation for basic necessities like food over the past decades, reduced their purchases of non-essential items.

Walmart stock shares are now on pace for the largest daily percentage decline since Oct 16 1987’s 11.79% plunge. This was the last session prior to the “Black Monday”, when the stocks plummeted more than 22%.

Walmart dragged shares of In Target Corp (NYSE:), finished below 1% before its earnings report, due Wednesday morning. Both Dollar General (NYSE) and Dollar Tree(NASDAQ:) fell by 3%.

However, while the sector of consumer staples declined 1% in the benchmark, 2.7% was gained by the sector’s consumer discretionary, as clothing, travel, automaker and other shares gained ground.

According to data, U.S. retail sales increased strongly in April due to consumers spending more money on vehicles because of supply increases. The economy was also boosted by consumers spending more in restaurants at the beginning of the quarter.

Some strategists believe that the contrast is because of how high inflation affects lower income customers who shop at Walmart, dollar stores, and consumers who still have access to pricier products from companies such as Under Armour, Ralph Lauren, and PVH Corp (NYSE :).

The price rises resulting in the conflict between Russia and Ukraine have been in the purchase of goods and services that “the consumer can’t do without,” Eric Theoret at Manulife stated. This means lower income consumers are experiencing “real income shock.”

The ability of the lower-end consumers to spend is much more important than their panademic savings. With respect to earnings, we are seeing solid wage gains at the lower quintiles but even these are unable to keep pace with inflation – eroding consumers’ ability to spend,” Theoret said.

The trend also showed up in the shares of packaged foods companies like Kraft Heinz (NASDAQ) – down 2% General Mills (NYSE:) Down 0.7% after Walmart stated that shoppers have switched to store-branded products at a lower price than those from well-known labels.

However, some consumers who are more wealthy may be seeking grocery store discounts, Lindsey Bell of Ally, chief markets strategist and money strategist noted that the data on retail sales showed that shoppers still have enough money to spend.

The consumer continues to spend. Consumers aren’t dying… Bell said that the consumer still wants to spend their money on experiences and services, adding that this might explain why clothing stores are growing in share.

You must dress up for going out or taking part at different activities, she stated.

Additionally, in 2022 the staples industry has performed better than any consumer discretionary stock, which saw a decrease of approximately 25%.

Bell said, “Investors are beginning to recognize that they had left consumer discretionary sectors stocks in general for dead with an exit from the discretionary and into staples.”

Jim Paulsen is chief investment strategist for The Leuthold Group, Minneapolis. He noted that although consumers may be very anxious right now, they are actually in really good health.

Paulsen said that almost every fear is tied to the fear of inflation. He believes inflation is stabilizing which means investors and consumers could stop worrying about rising bond yields, Federal Reserve rates hikes, or an impending recession.

Consumer confidence will rise if inflation keeps rolling over. “I think it will run right through Main Street, as well as Wall Street,” said he.